DBRS: NYCB’s 4Q Boosted by Securities Gains; Core Results Dip on NIM Pressure

Summary:
• NYCB reported 4Q14 net income of $131.2 million, a 9.1% increase compared to $120.3 million earned for 3Q14, mostly driven by a $10.3 million (after tax) recovery on a previously written off investment security.
• DBRS views NYCB’s 4Q14 core results as reflecting continued sound fundamentals, including strong loan growth, low expenses, solid asset quality and adequate capital.
• DBRS rates the Company’s Issuer & Senior Debt rating at BBB (high) with a Stable trend.

DBRS, Inc. (DBRS) considers New York Community Bancorp, Inc.’s (NYCB or the Company) 4Q14 results as a continuation of recent performance trends, highlighted by solid deposit and loan growth. The Company is managing its balance sheet to remain under $50 billion in total assets over the near term and, to help it achieve this, sold some portfolio single family residential mortgage loans, reduced investment securities, and offered participations in certain multi-family and commercial real estate loans to other financial institutions.

Net interest income decreased from the linked-quarter reflecting lower prepayment penalty income and net interest margin pressure. A lower FDIC indemnification expense, investment securities gains and the recovery on a previously written off investment security helped to boost noninterest revenue. NYCB expense discipline continues although expenses were up modestly this quarter. The Company maintains an enviably-low efficiency ratio, which continues to hover in the low 40% range.

Asset quality continued to be sound and declined linked quarter on both lower levels of other real estate owned and nonaccrual loans. Given the current extremely modest loss levels (net charge-offs of just $2.1 million for 2014), DBRS views the Company’s reserve coverage as solid.

Reflecting a relatively flat balance sheet, NYCB’s capital levels increased modestly quarter-on-quarter. DBRS views the Company’s capital levels as sufficient given current loss rates.

NYCB’s ratings consider the Company’s resilient earnings generation and sound asset quality through the credit cycle, which reflects positively on its lower risk niche business of multi-family lending, primarily on rent controlled/stabilized buildings in New York City. The ratings also reflect NYCB’s relatively high, yet manageable level of wholesale funding reliance, exposure to larger credits and geographic concentration in its loan book, and its high dividend payout ratio which reduces financial flexibility.

Note:
All figures are in U.S. dollars unless otherwise noted.